Glossary of Financial Terms for Nonprofits

These standards are defined under GAAP and have slightly different rules for nonprofits. Within your nonprofit, you might have an internal role as your bookkeeper and choose to hire a separate accountant. You can also outsource the accounting function to a firm to collaborate with your bookkeeper. Bookkeepers organize financial nonprofit accounting records, while accountants interpret and further analyze that information. Accounting and bookkeeping are often used in the same conversation because they are both critical to managing finances. When mapping out your process, it’s helpful to understand how accounting and bookkeeping work together and how they differ.

Unrelated Business Income

These certifications can help build expertise and credibility while demonstrating your commitment to professional development in the non-profit accounting field. Trust refers to a fiduciary relationship, with respect to property, subjecting the person who holds the title of the property to equitable duties to deal with the property for the benefit of another person. For example, person A gives property in trust, with person A as trustee, to pay income to person B for life, https://www.bookstime.com/ and then to give property over to person C, free and clear. Also known as a lapsed donor, LYBUNT is an acronym for donors who gave “Last Year But Unfortunately Not This” (year). A letter of inquiry is sent by an organization to a foundation or corporation, seeking funding for a project and asking the foundation or corporation to consider funding the project or receiving a full proposal. Donor retention is the percentage of people who repeatedly support your organization.

Creating a Budget

Strong nonprofit accounting is the foundation of any successful fundraising strategy. Whether you’re in charge of the numbers or not, keeping a pulse on your organization’s finances is always a smart idea. Chart of Accounts – A chart of accounts is the backbone for all accounting procedures. Accounting is based on the reports and statements that organizations use to track their finances. Your COA lists out these various accounts and ledgers to keep track of all financial transactions and elements. Cash-Basis Accounting – An accounting method where revenue and expenses are recognized at the time cash is received or paid out.

• The delegation also helps alleviate leadership of day-to-day accounting tasks and allows them to focus on other organizational objectives.
• What results is an employee who is expected to fulfill multiple roles to run the nonprofit.
• A mission is a philosophical or value statement that seeks to respond to why the organization exists, or its basic reason for being.
• Committed GrantsA contribution for which the organization has received a formal notification from the donor that an award will be made at a future date.

Create and maintain a budget

Both of these positions are vital to your organization’s success, but they shouldn’t be lumped together. While a volunteer or staff member might be able to take on their organization’s bookkeeping duties, they’d be hard-pressed to take on an accountant’s responsibilities. Nonprofit and for-profit accounting are very different entities and require different approaches. Therefore, they also require different technology and a unique set of skills from your accountant. Integrating data analytics into your business can help your revenue grow, the organization mitigate risk, or gain insight into your business operations. Nonprofits often operate under tight budgets, which means they usually employ few staff members.

Understanding and Applying GAAP for Nonprofits: FAQ Guide

CapitalizationThe distribution, nature and magnitude of an organization’s assets, liabilities and net assets. “With donors focused on making the most of their contribution, it is important for nonprofits to allocate costs correctly,” said Gwaltney. A special event is a fundraising function designed to attract and involve large numbers of people for the purpose of raising money or cultivating donors. The size of the gift may vary according to organization’s needs and goals, and it may periodically repeat. Grassroots fundraising refers to raising modest amounts of money from individuals or groups from the local community on a broad basis. It is usually done within a specific constituency, among people who live in the neighborhood served, or people who are clients.

• Chart of Accounts – A chart of accounts is the backbone for all accounting procedures.
• Both of these positions are vital to your organization’s success, but they shouldn’t be lumped together.
• Often undertaken to predict the viability of a new venture, facility project or capital campaign.
• Nonprofit organizations may apply to the Internal Revenue Service in order to be exempt from federal income taxes.
• If you don’t have enough funding to reinvest into the organization (the net assets available to your team), it will be challenging to achieve growth.

Key Principles of Nonprofit Accounting